Digital China launches 2b yuan joint venture

PUBLISHED : Wednesday, 29 October, 2008, 12:00am
UPDATED : Wednesday, 29 October, 2008, 12:00am

Digital China Holdings, the mainland's largest information technology product and service provider, yesterday launched a joint venture in a strategic shift of its business focus amid global market uncertainties.

The 2.05 billion yuan (HK$2.33 billion) Digital China Information Technology Service was also backed by China Singapore Suzhou Industrial Park Ventures and Infinity I-China Investments of Israel, which have combined for a 19.5 per cent stake through a joint 400 million yuan capital injection.

The alliance between Singapore Suzhou Industrial Park Ventures and the Israeli fund also has the option to pump in another 100 million yuan in the next 12 months.

The new venture was intended to seize opportunities offered by the rapid growth of the mainland IT service market, valued at US$9.6 billion in 2010, according to IDC.

But the latest developments in the global equity markets have apparently taken their toll on Digital China's confidence.

'According to our original plan, we targeted an annualised growth rate of 50 per cent before floating the venture on the domestic A-share market in three years,' said Guo Wei, chairman of Digital China.

'Now we are giving the scheme second thoughts. Solid increase in IT service demand, like those generated by the restructuring of the domestic telecommunications industry, would help keep the momentum,' said Mr Guo. 'I think our future lies in this sector.'

But some analysts said Digital China, which has eked out most of its profits from IT product distribution and infrastructure building in the past, has a harder battle on hand.

'The IT service business requires higher consulting and managerial merits,' said Eric Wen, an analyst from Die Mainfirst Bank. 'Plus, the market in China is dissipated, which means it's hard to build up dominance. You need a lot of extra effort to pull resources together.'